November 20, 2006	Monday	Shawwal 27, 1427

WITH the admission of Vietnam to the World Trade Organisation (WTO), the total membership of the organisation comes to 150, the majority of whom are developing countries.

These countries have been given special status in the multilateral trading system through the principle of special and differential (S&D) treatment. And one of the objectives of the WTO is to ensure that developing countries, especially the least developed countries (LDCs), secure a share in global trade commensurate with the needs of their economic development.

Therefore, a foremost question is where do developing countries stand in global trade? An attempt has been made here to assess the position of developing countries in global trade in the light of the relevant data derived from, WTO International Trade Statistics 2005 and UNCTAD Handbook of Statistics 2005

The share of developing countries in global merchandise exports has gone up from 24.21 per cent in 1990 to 33.46 per cent in 2004 and their share in merchandise imports increased from 22.53 per cent to 30.43 per cent during this period. Thus, the developing countries taken as a group have done well in terms of their share in global trade. But as we shall see, this performance can easily be attributed to a handful of bigger or relatively advanced economies.

In 1990, the share of 10 leading developing countries—China, Hong Kong, South Korea, Taiwan, Singapore, Mexico, Malaysia, India, Thailand and Brazil—in global exports and imports was 13.44 and 13.06 per cent respectively. In 2004, the share of the same 10 countries in global exports and imports had reached 23 and 20 per cent each.

Minus these 10 economies, the percentage share of developing countries in global exports and imports in 1990 was 10.77 and 9.49 per cent respectively. In 2004 that share was 10.75 for exports and 10.43 for imports. The share of the 10 leading economies in total exports and imports of developing countries in 1990 was 55 and 58 per cent. The share had increased to 68 for exports and 69 per cent for imports in 2004.

On the other hand, LDCs—the countries most in need of trade benefits— accounted for less than one per cent of global exports and imports in 1990 and continue to have that low share in 2004. In terms of their share in developing countries’ trade, the situation is disappointing as well.

In 1990, LDCs accounted for 2.32 of exports and 3.14 per cent of total imports. In 2004, their share in exports and imports had fallen to 1.92 and 2.29 per cent respectively.

Among the developing countries, China’s performance has been spectacular. In 1990, China accounted for less than two per cent of global exports and seven per cent of developing countries’ exports. In 2004, its share in global and developing countries’ exports had risen to 6.5 and 20 per cent.

What is the reason for this asymmetric trade performance of developing countries? According to the exponents of free trade, trade liberalisation is beneficial for all countries regardless of their size and level of development. Though some sectors within an economy may suffer as it opens up and adjusts to foreign competition, on aggregate the gains from free trade outweigh possible losses.

The counter argument is that a country’s capacity to derive benefits from trade liberalisation primarily depends on its size and level of development. Free trade, no doubt, increases the size of the pie but the distribution of the enlarged pie is uneven with bigger and relatively more advanced countries getting the lion’s share. Hence, not surprisingly, in the wake of trade liberalisation bigger or relatively more advanced developing countries have performed far better than smaller or less advanced developing countries.

Developing countries have traditionally relied on the export of primary products and labour intensive manufactured products. Since the major markets of developing countries’ exports have been developed countries, the growth in export of developing countries depends in large measures on demand for these products in developed markets.

But as developed countries have moved towards service-based economy and their growth have slowed, the demand for primary commodities has fallen. Hence, developing countries that have shed their dependence on primary products and moved towards value added exports have seen substantial increase in their exports.

Another way out for developing countries is to trade among themselves. This phenomenon is known as South-South trade. According to UNCTAD (Trade and Development Report 2005), the share of such trade in the global exports of developing countries has gone up from 27 per cent in 1985 to 43 per cent in 2003. But even in case of South-South trade, the major beneficiaries have been the bigger and relatively more advanced countries.

According to UNCTAD, the top 10 exporters in south -south trade in 2003 were: China (19.7), Hong Kong (14.2), South Korea (11.1), Singapore (9.4), Taiwan (9.3), Malaysia (6), Thailand (4.1), India (3.4), Brazil (3.3), and Indonesia (3.1). These countries together account for 83.5 per cent of exports in south-south trade is 83.5 per cent.

This makes it clear that the capacity to drive benefit from opportunities thrown up by trade liberalisation is contingent upon the supply-side constraints and strengths of developing countries. Two types of countries are beneficiaries of trade liberalisation.

On the one hand, there are bigger countries like China and India where firms can realise the economies of scale and thus price out their competitors in foreign markets by offering cheaper products. Competitiveness of such countries is primarily based on price.

On the other hand, there are smaller but relatively advanced developing countries like South Korea and Singapore whose export performance thrives on high-tech value added products. These countries compete not on the basis of price but on the basis of product differentiation.

Thus greater market access, though important, is not enough to push up exports of developing countries. What is equally, if not more, important is to improve the supply-side capacity of these countries. Even the best available market access opportunities are likely to remain under-utilised if developing countries by and large continue to be deficient in human, material, and financial resources.